At the beginning of a tenancy, the landlord may require the tenant to provide a security deposit. This is mostly done with the rental deposit. Prerequisite is an appropriate agreement in the lease. The rent deposit is meant to protect the landlord in case the tenant does not pay his rent or causes damage to the apartment.
The following questions are covered in this article:
- What are the most common forms of rental collateral?
- What is meant by a
"Insolvency-proof investment of rental collateral"? - Does the landlord have to pay interest on the security deposit?
- What does "overcollateralization" mean??
- What happens if the landlord
Served out of the security deposit in the current tenancy? - What happens when there is a change of homeowner?
- May the rent deposit be used up?
- When is the repayment of the deposit?
- If the landlord is allowed to take a portion of the security deposit
retained for operating costs? - How is the repayment of the bail?
1. What are the most common forms of security of tenure?
The cash deposit: the tenant transfers the amount of money to the landlord in an escrow account. He is entitled to pay the sum in three consecutive monthly installments, with the first installment due at the beginning of the tenancy.
Pledging a savings account: the tenant sets up a savings account with the required deposit amount and pledges it in favor of the landlord. Credit institutions have forms ready for the pledge declaration. The form should include a clause stating that the credit institution will notify the tenant if the landlord requests a payout of the deposit money. The passbook is given to the landlord along with the pledge statement.
Savings book with a blocking notice: The tenant transfers the savings account established with the rental security directly to the landlord. The savings account should be blocked beforehand by the financial institution, which ensures that each party can only dispose of the claims from the savings account with the consent of the other party.
The guarantee by a third party: The guarantor stands in for the tenant's obligations under the tenancy. The guarantee should be limited to the allowable three months' rent. It must be made in writing and must be signed by the guarantor personally. The guarantee form is given to the lessor. If no third party is available, a bank can also act as a guarantor. One drawback in this case is that banks charge fees for posting a bond.
2. What is meant by an "insolvency-proof investment of rental security."?
If the rental security is paid as a cash deposit, the landlord is required to place the deposit in a trust account separate from its assets. In the event of a landlord's bankruptcy, creditors have no access to the tenant's security deposit in this case. The tenant can demand that the landlord provide proof of an insolvency-proof account and withhold payment of the deposit until such proof is provided (Federal Court of Justice of 13. October 2010 – VIII ZR 98/10).
3. Does the landlord have to pay interest on the deposit?
Yes. § 551 para. 3 of the Civil Code stipulates that the deposit must be invested at the usual interest rate for savings deposits with a three-month notice period. The interest accrued increases the deposit amount and is due to the tenant after termination of the tenancy. Failure to invest security deposit in accordance with law constitutes breach of contract, obligating landlord to pay damages. The damage consists of the loss of interest due to the failure to invest. The loss of interest can be calculated by a credit institution.
4. What does "overprotection" mean?
The landlord may demand a maximum of three months' rent (excluding advance payments for heating and operating costs) as security for rent. If he demands more, there is an impermissible overcollateralization. The tenant can then reclaim the excess amount. It is also inadmissible if the landlord makes other demands in addition to a cash deposit, such as for a guarantee, and thus obtains a total of more than three months' rent security. But beware: the limitation to three months' rent does not apply if a third party (for example, a student's mother) voluntarily and unsolicitedly provides the landlord with a guarantee for the liabilities under the lease (Federal Court of Justice of 7. June 1990 – IX ZR 16/90).
5. What happens if the landlord helps himself from the deposit in the current tenancy?
If the landlord has claims against the tenant arising from the tenancy and offsets them against the deposit, the deposit is diminished and the landlord can demand that it be restored to the amount of three months' rent. However, the deposit may only be accessed during the lease term because of legally established, undisputed or clearly justified claims. Disputed claims do not entitle to access. This does not change even if it is expressly agreed in the lease that the landlord may satisfy himself from the deposit because of due claims even during the tenancy. Such an agreement in the lease is invalid (Federal Court of Justice of 7. May 2014 – VIII ZR 234/13).
6. What happens if there is a change of homeowner?
In the event of a sale of the residence, the new owner takes the legal position of the old owner and can claim the transfer of the deposit. Unlike a cash deposit, the transfer of a pledged savings account requires the tenant's cooperation. If the tenant refuses to cooperate, the old owner will release the rental security to the tenant to protect against future liability. In this case, the new landlord is entitled to renewal of the rental security (Berlin District Court of 6. July 2010 – 63 S 319/09).
It is different if the old owner has already returned the deposit to the tenant or declared the release of the pledged savings account before the sale of the house or apartment. Thus, by mutual agreement, the security deposited is waived and the lease agreement is amended. The new owner cannot then demand renewal of the deposit from the tenant after the sale, as there is no contractual basis (Berlin Regional Court of 15. March 2011 – 65 S 283/10).
7. May the rent deposit be lived off?
No: The tenant may not simply stop paying rent three months before the end of the tenancy on the grounds that the landlord can draw from the deposited rental security deposit. That would undermine the security purpose of the deposit. While the tenant probably does not have to fear termination of the lease, which was ending anyway. However, there is a threat of legal fees if the landlord has the back rent collected by a lawyer.
8. When is the return of the deposit?
After termination of the tenancy and return of the apartment, the landlord must account for the rent deposit within a reasonable period of time. There are no legal regulations governing the settlement period. Since claims for damages by the landlord six months after the return of the apartment is barred by the statute of limitations, the view in case law is that the landlord also has that long time to account for the deposit. However, the settlement period can also be much shorter, for example, if the landlord can immediately determine without problems what claims he is entitled to against the tenant.
9. Is the landlord allowed to withhold a portion of the security deposit for operating expenses?
Yes. If a utility bill is still outstanding and an additional claim against the tenant is expected, the landlord is allowed to withhold an appropriate portion of the security deposit until the utility bill is settled.
10. How is the refund of the deposit?
If there are no claims against the tenant, the cash deposit plus accrued interest is returned to the tenant. In the case of a surety bond, the surety bond is handed over to the guarantor. In the case of the pledged savings book, the landlord declares to the credit institution the release of the pledge and returns the savings book to the tenant. If there are claims against the tenant, the landlord can offset them against the cash deposit and transfer the balance to the tenant. In the case of a guarantee, the guarantor makes a claim and returns the guarantee document as soon as his claims are satisfied. In the case of a pledged savings book, the landlord shows his claims to the credit institution and asks for release of the claim. The credit institution informs the tenant and sweeps the required amount to the landlord after four weeks, provided that no objections are made by the tenant during this time.
Sample letter to your landlord:
This article does not replace legal advice. Before following the instructions, be sure to seek legal advice. The BERLIN RENTERS' ASSOCIATION e.V. will be happy to assist you.
TenantMagazine 6/14
Illustrations: Julia Gandras
Against unjustified access of the landlord one can protect deposits
A good rental security has the interests of both parties in mind
If there are no claims after the end of the contract, the tenant has the right to get the deposit back within a reasonable period of time